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Monday, December 1, 2008

Buyers Paying Less Cash For HDB Resale Flats

Source : The Straits Times, Nov 30, 2008

Some deals may be done at valuation but no drop in prices; big flats moving slowly

The private home market is at a standstill and prices have fallen as the global financial crisis scares buyers away.

However, there are increasing signs that this segment of the market is no longer immune to the economic slowdown.

While prices have not dropped, the cash amount that buyers typically pay on top of the flat's valuation has fallen more significantly, experts said.

This cash-over-valuation sum - or what the market refers to as the COV - is usually a must for most transactions, especially in a booming market.

Now that the HDB market outlook is less upbeat, some deals are even likely to be done at valuation, which means no COV is required.

'We started to see the impact of all the bad news only in the past month,' said C&H Realty managing director Albert Lu.

'News of the stock market falling and retrenchments impact buyers' sentiment. Now, they are saying: Maybe we should wait.'

To entice those sitting on the fence, sellers have lowered their COV expectations by as much as 50 per cent, said Mr Lu.

Most COVs now roughly range from $5,000 to $30,000 for selected areas, according to Mr Eugene Lim, associate director of ERA Asia Pacific.

'Until recently, a COV of $5,000 was almost unheard of.'

A property agent said she is finalising a deal for an executive flat in Hougang in which the seller is willing to sell at valuation, without any COV.

'I noticed that there are more ads asking for zero cash,' she said. 'Old flats that need a lot of renovation could be sold for zero cash.'

The Housing Board's third quarter data showed that COVs mostly ranged from $10,000 to as much as $50,000. The overall median COV was $19,000, down from $20,000 in the second quarter and $21,000 in the first.

It rose to a high of $22,000 in last year's fourth quarter, from $17,000 in the third quarter and just $7,000 in the second.

'In view of the current sentiment, HDB resale flat valuations should stay flat going forward,' said Mr Lim. 'So if COV is coming down, prices will eventually come down.'

Prices, however, will not plunge as there is a large base of potential buyers, he said.

Within the HDB market, the segment for small flats will likely be busier than the one for bigger flats. Already, property experts say the market for bigger flats - five-room flats and executive flats - have started to slow down.

This led Mr Lu to project that prices of bigger flats could fall by 1 to 2 per cent in the fourth quarter.

ERA's Mr Lim expects prices of these flats to drop by around 5 to 8 per cent in the first half of next year.

Prices of smaller flats, they said, could remain steady.

While prices are likely to fall, sales volume may hold or even rise going forward, said Mr Lim.

Demand remains strong as there are newly-weds and permanent residents looking for HDB flats.

The demand is evident from HDB's build-to-order (BTO) flat sales. Recently, the sales of its new premium-quality BTO flats at Punggol Arcadia appeared to have met with fairly strong demand, even though they were priced from $356,000 to as much as $416,000 for a five-room unit. There were three times as many subscribers as the number of units available.

HDB said they are cheaper than other comparable HDB resale flats nearby, which cost between $375,000 and $462,000.

'New flats are sold according to what they would fetch on the open market, but with a generous discount which is the subsidy that buyers enjoy,' said an HDB spokesman.

'When the market goes up, HDB prices also move up. But when the market goes down, new flat prices are reduced.'

In any case, HDB flat prices are largely more manageable than the price of a private home.

'In challenging times, homebuyers tend to spend less by falling back on what is deemed a safer and more affordable housing option' than private homes, according to a recent ERA study.

It also noted that HDB resale flat sales volume was steady in 1997 when the Asian financial crisis began. The following year, when retrenchments rose, sales volume actually shot up by 57 per cent to 49,618 units.

'Many people were downgrading from private properties to HDB flats,' explained Mr Lim.

It is a scenario that could happen again next year as the economy weakens further, he said.

As to the extent of the price or volume movements for the whole of next year, that will depend on the state of the economy, experts said.

Flat trend

'In view of the current sentiment, HDB resale flat valuations should stay flat going forward. If COV is coming down, prices will eventually come down.'